US Retail Sales Decline in March
According to the Commerce Department, retail spending in the United States fell by 1% in March compared to the previous month. This decline was steeper than the anticipated 0.4% drop, as reported by Refinitiv. In contrast, the revised figure for the previous month’s decline was 0.2%.
Investors have attributed some of the weakness in retail sales to a lack of tax refunds and concerns about a slowing labor market. The IRS issued $84 billion in tax refunds in March, which is $25 billion less than the amount issued in March 2022, according to BofA analysts.
As a result, consumers pulled back on spending at department stores and on durable goods, such as appliances and furniture. Sales at general merchandise stores fell by 3% in March from the previous month, and spending at gas stations declined by 5.5% during the same period. Excluding gas station sales, retail spending retreated by 0.6% in March from February.
However, retail spending increased by 2.9% year-over-year.
Economists have suggested that smaller tax refunds and the expiration of enhanced food assistance benefits may have contributed to the decline in retail sales. Aditya Bhave, senior US economist at BofA Global Research, noted that March is an important month for refunds, and some individuals may have been expecting a similar amount to what was issued last year.
Credit and debit card spending per household, tracked by Bank of America researchers, moderated in March to its slowest pace in over two years. This was likely the result of smaller returns and expired benefits, combined with slowing wage growth.
The expiration of enhanced pandemic-era benefits provided through the Supplemental Nutrition Assistance Program may have also held back spending in March, according to a Bank of America Institute report.
Average hourly earnings grew by 4.2% in March from a year earlier, which is down from the prior month’s annualized 4.6% increase. The smallest annual rise since June 2021, this decrease may have contributed to the decline in retail sales.
Despite this, the US labor market remains solid, even though it has lost momentum recently. Michelle Meyer, North America chief economist at Mastercard Economics Institute, noted that the big picture is still favorable for the consumer when considering their income growth, balance sheet, and the health of the labor market.
Employers added 236,000 jobs in March, a robust gain by historical standards but smaller than the average monthly pace of job growth in the prior six months. The latest monthly Job Openings and Labor Turnover Survey (JOLTS) report showed that the number of available jobs remained elevated in February but was down more than 17% from its peak in March 2022.
The job market could cool further in the coming months. Economists at the Federal Reserve expect the US economy to head into a recession later in the year as the lagged effects of higher interest rates take a deeper hold.
For consumers, the effects of the recent turbulence in the banking industry have been limited so far. Consumer sentiment tracked by the University of Michigan worsened slightly in March during the bank failures but had already shown signs of deteriorating before then.
The latest consumer sentiment reading showed that sentiment held steady in April despite the banking crisis. However, higher gas prices helped push up year-ahead inflation expectations by a full percentage point, rising from 3.6% in March to 4.6% in April.
